UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED September 30, 2019

COMMISSION FILE NUMBER 000-55683

CAROLINA TRUST BANCSHARES, INC.

(Exact name of registrant as specified in its charter)

NORTH CAROLINA

(State or other jurisdiction of incorporation or organization)

81-2019652

(I.R.S. Employer Identification No.)

901 EAST MAIN STREET

LINCOLNTON, NORTH CAROLINA 28092

(Address of Principal Executive Offices) (Zip Code)

(704) 735-1104

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of exchange on which registered
Common stock, par value $2.50 per share		CART		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☐	Accelerated Filer	☐

Non-accelerated Filer	☒	Smaller Reporting Company	☒

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of November 12, 2019 was 9,305,214.

TABLE OF CONTENTS

Part I.	FINANCIAL INFORMATION

Item 1 -	Financial Statements (Unaudited)

	Condensed Consolidated Balance Sheets September 30, 2019 and December 31, 2018	2

	Condensed Consolidated Statements of Operations Three Months Ended September 30, 2019 and 2018	3

	Condensed Consolidated Statements of Operations Nine Months Ended September 30, 2019 and 2018	4

	Condensed Consolidated Statements of Comprehensive Income Three Months Ended September 30, 2019 and 2018	5

	Condensed Consolidated Statements of Comprehensive Income Nine Months Ended September 30, 2019 and 2018	6

	Condensed Consolidated Statements of Changes in Stockholders’ Equity Three Months Ended September 30, 2019 and 2018	7

	Condensed Consolidated Statements of Changes in Stockholders’ Equity Nine Months Ended September 30, 2019 and 2018	8

	Condensed Consolidated Statements of Cash Flows Nine Months Ended September 30, 2019 and 2018	9

	Notes to Condensed Consolidated Financial Statements	10

Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38

Item 4 -	Controls and Procedures	48

Part II.	OTHER INFORMATION

Item 6 -	Exhibits	49

Table of Contents

Part I.

FINANCIAL INFORMATION

Item 1. Financial Statements

CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(Dollars in thousands, except share and per share data)

	September 30, 2019			December 31, 2018*
Assets
Cash and due from banks	$	13,865		$	10,918
Interest-earning deposits with banks		28,229			21,022
Cash and cash equivalents		42,094			31,940

Certificates of deposit with banks		2,245			1,498
Investment securities available for sale, at fair value (amortized cost $62,535 and $32,677)		63,761			31,960
Equity securities		780			617
Federal Home Loan Bank stock		1,400			1,050
Loans		483,164			393,282
Less: Allowance for loan losses		(3,983	)		(3,978	)
Net Loans		479,181			389,304

Bank-owned life insurance		11,099			7,393
Accrued interest receivable		1,714			1,259
Bank premises, equipment and software		8,840			6,093
Foreclosed assets		1,043			1,157
Goodwill		5,717			-
Core deposit intangibles, net of accumulated amortization of $1,168 and $744 at September 30, 2019 and December 31, 2018, respectively		2,447			40
Other assets		2,214			2,793
Total Assets	$	622,535		$	475,104

Liabilities and Stockholders’ Equity
Noninterest-earning demand deposits	$	92,476		$	61,120
Interest-earning demand deposits		191,997			142,899
Savings		38,011			22,693
Time deposits		193,649			168,437
Total deposits		516,133			395,149

Finance lease obligation		88			141
Federal Home Loan Bank advances		20,200			16,100
Long term subordinated debt		9,814			9,753
Accrued interest payable		760			421
Other liabilities		4,104			3,279
Total liabilities		551,099			424,843

Common stock warrant		-			426
Common stock, $2.50 par value; 20,000,000 and 10,000,000 shares authorized as of September 30, 2019 and December 31, 2018, respectively; 9,305,714 and 7,156,987 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively		23,264			17,892
Additional paid-in capital		36,371			25,211
Retained earnings		10,863			7,281
Accumulated other comprehensive income (loss)		938			(549	)
Total stockholders’ equity		71,436			50,261
Total Liabilities and Stockholders’ Equity	$	622,535		$	475,104

*Derived from Carolina Trust BancShares, Inc.’s audited financial statements included in its 2018 Annual Report on Form 10-K

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except share and per share data)

	Three Months Ended September 30,
	2019			2018
Interest Income
Interest on investment securities	$	487		$	215
Interest and fees on loans		6,739			5,036
Other interest income		146			168
Total interest income		7,372			5,419

Interest Expense
Interest expense non-maturity deposits		385			188
Interest expense time deposits		935			733
Interest expense borrowed funds		99			58
Interest expense on subordinated debt		193			192
Interest expense, other		2			5
Total interest expense		1,614			1,176
Net interest income		5,758			4,243
Provision for (recovery of) loan losses		(37	)		75
Net interest income after loan loss provision		5,795			4,168

Noninterest income
Overdraft fees on deposits		192			131
Interchange fee income, net		124			67
Service charges on deposits		25			18
Mortgage fee income		179			44
Customer service fees		21			14
ATM income		16			8
Bank-owned life insurance income		66			49
Unrealized gain (loss) on equity securities		(100	)		35
Other income		11			8
Total noninterest income		534			374

Noninterest expense
Salaries & benefits expense		2,262			1,799
Occupancy expense		214			193
Furniture, fixture & equipment expense		244			214
Data processing expense		278			198
Office supplies expense		27			1
Professional fees		77			105
Advertising and marketing		43			31
Insurance		23			83
Foreclosed asset expense, net		15			127
Loan expense		34			75
Stockholder expense		86			45
Directors fees and expenses		84			51
Telephone expense		93			101
Amortization of core deposit intangibles		138			9
Merger expenses		585			157
Other operating expense		203			138
Total noninterest expense		4,406			3,327
Pre-tax income		1,923			1,215
Income tax expense		496			300
Net income	$	1,427		$	915

Earnings per share
Basic earnings per common share	$	0.15		$	0.13
Diluted earnings per common share	$	0.15		$	0.13
Weighted average common shares outstanding		9,304,051			7,156,987
Diluted average common shares outstanding		9,375,163			7,243,875

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars in thousands, except share and per share data)

	Nine Months Ended September 30,
	2019		2018
Interest Income
Interest on investment securities	$	1,480	$	639
Interest and fees on loans		19,940		14,460
Other interest income		435		345
Total interest income		21,855		15,444

Interest Expense
Interest expense non-maturity deposits		1,089		500
Interest expense time deposits		2,635		2,043
Interest expense borrowed funds		273		248
Interest expense on subordinated debt		579		574
Interest expense, other		8		26
Total interest expense		4,584		3,391
Net interest income		17,271		12,053
Provision for loan losses		116		415
Net interest income after loan loss provision		17,155		11,638

Noninterest income
Overdraft fees on deposits		542		412
Interchange fee income, net		320		165
Service charges on deposits		91		49
Mortgage fee income		428		86
Customer service fees		69		43
ATM income		39		21
Bank-owned life insurance income		199		147
Unrealized gain on equity securities		96		123
Other income		34		24
Total noninterest income		1,818		1,070

Noninterest expense
Salaries & benefits expense		6,982		5,496
Occupancy expense		666		607
Furniture, fixture & equipment expense		663		524
Data processing expense		801		588
Office supplies expense		102		42
Professional fees		322		328
Advertising and marketing		129		90
Insurance		160		269
Foreclosed asset expense, net		117		453
Loan expense		167		161
Stockholder expense		220		114
Directors fees and expenses		283		191
Telephone expense		282		241
Amortization of core deposit intangibles		424		26
Merger expenses		2,356		480
Other operating expense		631		433
Total noninterest expense		14,305		10,043
Pre-tax income		4,668		2,665
Income tax expense		1,086		659
Net income	$	3,582	$	2,006

Earnings per share
Basic earnings per common share	$	0.39	$	0.33
Diluted earnings per common share	$	0.38	$	0.32
Weighted average common shares outstanding		9,297,383		6,118,461
Diluted average common shares outstanding		9,370,628		6,211,670

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

	Three Months Ended September 30,
	2019			2018

Net income	$	1,427		$	915

Other comprehensive income (loss):
Unrealized gain (loss) on investment securities:
Unrealized holding gains (losses) arising during period		132			(208	)
Deferred income tax benefit (expense)		(31	)		48
Total other comprehensive income (loss)		101			(160	)

Total comprehensive income	$	1,528		$	755

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2019			2018

Net income	$	3,582		$	2,006

Other comprehensive income (loss):
Unrealized gain (loss) on investment securities:
Unrealized holding gains (losses) arising during period		1,943			(812	)
Deferred income tax benefit (expense)		(456	)		190
Total other comprehensive income (loss)		1,487			(622	)

Total comprehensive income	$	5,069		$	1,384

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)

			Common Stock
	Warrant		Shares		Amount		Additional paid-in capital			Retained earnings		Accumulated other comprehensive income (loss)			Total

Balances at June 30, 2018	$	426		7,156,987	$	17,892	$	25,214		$	5,420	$	(751	)	$	48,201
Net income		-		-		-		-			915		-			915
Issuance of common stock		-		-		-		(2	)		-		-			(2	)
Other comprehensive loss		-		-		-		-			-		(160	)		(160	)
Balance at September 30, 2018	$	426		7,156,987	$	17,892	$	25,212		$	6,335	$	(911	)	$	48,954

Balances at June 30, 2019	$	-		9,301,575	$	23,254	$	36,370		$	9,436	$	837		$	69,897
Net income		-		-		-		-			1,427		-			1,427
Exercise of stock options		-		4,139		10		1			-		-			11
Other comprehensive income		-		-		-		-			-		101			101
Balance at September 30, 2019	$	-		9,305,714	$	23,264	$	36,371		$	10,863	$	938		$	71,436

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

(Dollars in thousands)

				Common Stock
	Warrant			Shares		Amount		Additional paid-in capital		Retained earnings			Accumulated other comprehensive income (loss)			Total

Balances at December 31, 2017	$	426			4,657,880	$	11,645	$	13,008	$	4,772		$	(732	)	$	29,119
Net income		-			-		-		-		2,006			-			2,006
Exercise of stock options		-			3,107		7		8		-			-			15
Stock based compensation		-			-		-		1		-			-			1
Issuance of common stock		-			2,496,000		6,240		12,195		-			-			18,435
Reclassification of certain tax effects		-			-		-		-		(443	)		443			-
Other comprehensive loss		-			-		-		-		-			(622	)		(622	)
Balance at September 30, 2018	$	426			7,156,987	$	17,892	$	25,212	$	6,335		$	(911	)	$	48,954

Balances at December 31, 2018	$	426			7,156,987	$	17,892	$	25,211	$	7,281		$	(549	)	$	50,261
Net income		-			-		-		-		3,582			-			3,582
Exercise of stock options		-			10,994		27		7		-			-			34
Acquisition of Clover Community Bankshares, Inc.		-			2,123,858		5,310		10,762		-			-			16,072
Exercise of warrant		(426	)		13,875		35		391		-			-			-
Other comprehensive income		-			-		-		-		-			1,487			1,487
Balance at September 30, 2019	$	-			9,305,714	$	23,264	$	36,371	$	10,863		$	938		$	71,436

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars in thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities
Net income	$	3,582		$	2,006
Adjustments to reconcile net income to cash and cash equivalents provided by operating activities:
Provision for loan losses		116			415
Depreciation and amortization of bank premises, equipment and software, and operating lease right-of-use assets		558			346
Acquired loan accretion		(447	)		(5	)
Accretion of time deposit discount and amortization of core deposit intangibles		452			26
Net amortization of bond premiums/discounts		242			104
Amortization of long-term subordinated debt issuance costs		61			57
Unrealized gain on equity securities		(96	)		(123	)
Stock compensation expense		-			1
Increase in value of bank-owned life insurance		(199	)		(147	)
Net losses and impairment write-downs on foreclosed assets		49			295
Deferred tax provision		592			27
Increase in other assets		(649	)		(17	)
Decrease (increase) in accrued interest receivable		48			(132	)
Increase in accrued interest payable		306			286
Increase (decrease) in other liabilities		(1,349	)		80
Net cash and cash equivalents provided by operating activities		3,266			3,219

Cash flows from investing activities
Net cash received from acquisition		8,741			-
Net increase in loans		(25,710	)		(33,769	)
Maturities of certificates of deposit with banks		593			-
Proceeds from the sale of foreclosed assets		1,159			330
Purchase of available for sale securities		(532	)		(3,034	)
Net purchases of bank premises, equipment and software		(377	)		(34	)
Proceeds from maturities, calls and pay-downs of available for sale securities		9,957			2,612
Redemptions (purchases) of Federal Home Loan Bank stock		(350	)		291
Net cash and cash equivalents used in investing activities		(6,519	)		(33,604	)

Cash flows from financing activities
Increase in deposits		9,326			45,844
Increase (decrease) in Federal Home Loan Bank advances		4,100			(7,500	)
Finance lease payments		(53	)		(49	)
Issuance of long term debt		-			3,000
Repayment of long term debt		-			(3,000	)
Net proceeds from the issuance of common stock		34			18,450
Net cash and cash equivalents provided by financing activities		13,407			56,745
Net increase (decrease) in cash and cash equivalents		10,154			26,360

Cash and cash equivalents, beginning		31,940			9,056
Cash and cash equivalents, ending	$	42,094		$	35,416

Supplemental disclosure of cash flow information
Cash paid during the period for taxes	$	339		$	631
Cash paid during the period for interest	$	4,482		$	3,105

Noncash financing and investing activities
Unrealized gain (loss) on investment securities available-for-sale, net of taxes	$	1,487		$	(622	)
Transfer of loans to foreclosed assets	$	202		$	1,618
Fair value of assets acquired	$	115,141		$	-
Fair value of liabilities assumed	$	113,500		$	-
Initial recognition of operating lease right-of-use assets	$	457		$	-
Initial recognition of operating lease liabilities	$	443		$	-

See accompanying notes to Condensed Consolidated Financial Statements.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

(1)	Presentation of Financial Statements

The consolidated financial statements include the accounts of Carolina Trust BancShares, Inc. (the “Company”), its subsidiary, Carolina Trust Bank (the “Bank”), and the Bank’s wholly owned subsidiary, Western Carolina Holdings, LLC, which owns certain Bank assets. All significant intercompany balances and transactions have been eliminated in consolidation. On August 16, 2016, the Company announced that it had consummated a statutory share exchange pursuant to which it became the parent company of the Bank. Shares of the Bank’s common stock were exchanged for shares of the Company’s common stock at a one-for-one exchange rate. The Company is a North Carolina business corporation that operates as a registered bank holding company under the Bank Holding Company Act of 1956. The Bank is the only subsidiary of the Company.

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for fair presentation of the financial information as of September 30, 2019, in conformity with accounting principles generally accepted in the United States of America. Operating results for the nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019.

Information regarding the organization and business of the Company, accounting policies followed by the Company and other information are contained in the notes to the consolidated financial statements filed as part of the Company’s 2018 Annual Report on Form 10-K. This quarterly report should be read in conjunction with the Annual Report.

(2)	Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), which amended the Leases topic of the Accounting Standards Codification to revise certain aspects of recognition, measurement, presentation, and disclosure of leasing transactions. ASU 2016-02 was effective for the Company on January 1, 2019. The standard provides for a modified retrospective transition approach requiring lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption with the option to elect certain practical expedients. The Company has elected to apply the standard as of the beginning of the period of adoption (January 1, 2019) and did not restate comparative periods. The Company has adopted all the optional practical expedients available under ASU 2016-02.

The operating leases of the Company relate to office space and bank branches. As a result of implementing ASU 2016-02, we recognized an operating lease right-of-use (“ROU”) asset of $457,000 and an operating lease liability of $443,000 on January 1, 2019, with no impact on net income or stockholders’ equity. The ROU asset and operating lease liability are recorded in bank premises, equipment and software and other liabilities, respectively, in the consolidated balance sheet as of September 30, 2019. See Note 12 - Leases for additional information.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. The new standard introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted beginning after December 15, 2018. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows. The Company has formed a management committee including those responsible for credit analysis and review, accounting and finance, information technology and lending to develop an understanding of the requirements and plan implementation. The Company has adopted a software model for the ALLL model that has add-on functionality for compliance with the new standard and has contracted with a vendor to help with the development of the ALLL model for the new standard. The Company has also selected the methodologies to be used with the different loan segments and has ran different scenarios. Notwithstanding the effective dates described above, at its October 16, 2019 meeting, the FASB approved its August 2019 proposal to grant private companies, not-for-profit organizations, and certain small public companies various effective date delays. The implementation date for the Company, which is defined as a smaller reporting company by the SEC will be for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820) – Changes to the Disclosure Requirements for Fair Value Measurement. These amendments remove the requirement to disclose the amount of and reasons for transfers between Level 1 and Level 2 fair value measurement methodologies, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. It also adds a requirement to disclose changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level 3 measurements. For certain unobservable inputs, entities may disclose other quantitative information in lieu of the weighted average if the other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for annual periods and interim periods within those annual periods, beginning after December 15, 2019. Early adoption is permitted. The Company is evaluating the impact this standard will have on its disclosures.

Other accounting standards that have been issued by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

(3)	Business Combination

Acquisition of Clover Community Bankshares, Inc.

On January 1, 2019 the Company acquired by merger Clover Community Bankshares, Inc. (“Clover”), the parent holding company for Clover Community Bank, Clover, South Carolina. Pursuant to the Agreement and Plan of Merger and Reorganization between the Company and Clover dated June 14, 2018, Clover merged with and into the Company, with the Company being the surviving corporation in the merger. Immediately following the parent merger, Clover Community Bank was merged with and into the Bank, also effective January 1, 2019. Pursuant to the merger agreement, each share of Clover capital stock was converted into either 2.7181 shares of the Company’s common stock or $22.00 in cash and subject to a prescribed allocation in the merger agreement that provided that 80% of Clover’s shares would be converted to the stock consideration and 20% of Clover’s shares would be converted into the cash consideration. Overall, the Company issued 2,123,858 shares of its common stock in exchange for 80% of the Clover shares and paid $3,008 in lieu of fractional shares that would otherwise have been issued. The cash merger consideration paid for 20% of the Clover shares totaled $4,298,360. The stock consideration was valued at $7.58 per share, based on the most recent closing price reported on The Nasdaq Stock Market for a share of the Company’s common stock on the date immediately preceding the merger date. In accordance with the merger agreement, cash in lieu of fractional shares was valued at a rate of $7.63 per share, based on the 20-day average closing price for a share of the Company’s common stock for the 20-trading days immediately preceding the merger date. The total purchase price paid was $20.4 million.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

The transaction was accounted for using the purchase method of accounting for business combinations. Under the purchase method of accounting, the assets and liabilities of Clover were recorded based on estimates of fair values as of January 1, 2019. In the second quarter of 2019, there were some additional adjustments to the fair value of assets acquired. An increase in the amount of $76,000 was made to the fair value adjustments of loans acquired due to a correction on the valuation of interest only loans. A decrease of $330,000 to Core deposit intangible was recorded due to correction of the FHLB offering rates used in the valuation calculation. An offsetting entry was made to the deferred tax asset, which is included in other assets, for $96,000. The remaining $310,000 was recorded as an increase to goodwill. In the third quarter of 2019, there was one adjustment to the fair value of assets acquired. A decrease of $68,000 was made to other assets due to the decrease in the value of a foreclosed asset. An offsetting entry was made to the deferred tax asset, which is included in other assets, for $16,000. The remaining $52,000 was recorded as an increase to goodwill.

The following table summarizes the allocation of the purchase price to the assets acquired and the liabilities assumed based on their estimated fair value:

(Dollars in thousands)	As Recorded by Clover			Fair Value Adjustments			As Recorded by the Company
Assets
Cash and cash equivalents	$	13,042		$	-		$	13,042
Certificates of deposit with banks		1,340			-			1,340
Securities		39,637			(45	)		39,592
Loans		66,343			(2,294	)		64,049
Allowance for loan losses		(1,452	)		1,452			-
Bank premises, equipment and software		1,827			644			2,471
Core deposit intangible		-			2,830			2,830
Other assets		5,854			(995	)		4,859
Total	$	126,591		$	1,592		$	128,183

Liabilities
Deposits	$	111,675		$	(46	)	$	111,629
Other liabilities		1,438			433			1,871
Total	$	113,113		$	387		$	113,500

Net identifiable assets acquired							$	14,683

Total cost of acquisition
Value of stock issued				$	16,099
Cash paid in the acquisition					4,301
Total cost of acquisition								20,400

Goodwill recorded							$	5,717

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

The following table presents the purchased credit impaired (“PCI”) and non-PCI loans receivable at the acquisition date. The amounts include principal only and do not reflect accrued interest as of the date of the acquisition or beyond:

Dollars in thousands	PCI loans			Non-PCI loans			Total loans acquired
January 1, 2019
Gross contractual amount receivable	$	5,246		$	61,097		$	66,343
Fair value adjustments		(1,318	)		(976	)		(2,294	)
Fair value of loans receivable	$	3,928		$	60,121		$	64,049

Goodwill recorded for Clover represents future revenues to be derived, including efficiencies that are expected to result from combining operations, and other non-identifiable intangible assets. None of the goodwill is expected to be deductible for tax purposes.

The following pro forma financial information presents the combined results of the Company and Clover as if the acquisition had occurred as of January 1, 2018. The pro forma results are adjusted for acquisition-related expense and are not necessarily indicative of the results of operations that would have occurred had the acquisition actually taken place on January 1, 2018, nor of future results of operations.

Pro forma income statement line items	Three Months Ended September 30,
	2019			2018
Dollars in thousands
Net interest income	$	5,779		$	5,529
Noninterest income		534			891
Total revenue		6,313			6,420

Net income available to common shareholders	$	1,484	*	$	1,144

Pro forma income statement line items	Nine Months Ended September 30,
	2019			2018
Dollars in thousands
Net interest income	$	17,241		$	15,917
Noninterest income		1,818			2,210
Total revenue		19,059			18,127

Net income available to common shareholders	$	4,998	*	$	2,713

*Pro forma net income for the three months and nine months ended September 30, 2019 excludes $50,000 and $1,821,000 respectively, in merger related expenses that were recognized during the periods. Net of tax, the amounts excluded for the three months and nine months ended September 30, 2019 were $38,000 and $1,407,000, respectively. Merger related expenses include payments to Clover employees for severance contracts, data processing conversion expenses, investment banker fees, consulting and auditing fees.

Proposed Merger with Carolina Financial

As previously reported, on July 15, 2019, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Carolina Financial Corporation (“CARO”), the holding company for CresCom Bank, Charleston, South Carolina. Under the Merger Agreement, it is proposed that the Company will merge with and into CARO (the “Merger”), and the Bank will merge with and into CresCom Bank. Subject to the terms and conditions of the Merger Agreement, the Company’s shareholders would receive 0.3000 shares of CARO common stock or $10.57 in cash for each share of the Company’s common stock, subject to election and proration such that the aggregate consideration will consist of 90% CARO common stock and 10% cash. The closing of the proposed Merger is subject to the required approval of the Company’s shareholders, requisite regulatory approvals, and other customary closing conditions.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

(4)	Earnings Per Share

Basic Earnings per Common Share

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, after giving retroactive effect to stock splits and dividends.

Diluted Earnings per Common Share

The computation of diluted earnings per common share is similar to the computation of basic earnings per common share except that the denominator is increased to include the number of additional common shares that would have been outstanding if dilutive potential common shares had been issued. These additional common shares would include employee equity share options, nonvested shares and similar equity instruments granted to employees, as well as the shares associated with the common stock warrants issued to the U.S. Treasury Department as part of the preferred stock transaction completed in February 2009. Diluted earnings per common share are based upon the actual number of options or shares granted and not yet forfeited unless doing so would be antidilutive. The numerator is adjusted for any changes in income or loss that would result from the assumed conversion of those potential common shares.

The following table summarizes earnings per share and the shares utilized in the computations for the three and nine months ended September 30, 2019 and 2018, respectively:

Dollars in thousands, except per share data	Net Income		Weighted Average Common Shares		Per Share Amount
Three months ended September 30, 2019
Basic earnings per common share	$	1,427		9,304,051	$	0.15
Effect of dilutive stock securities		-		71,112		-
Diluted earnings per common share	$	1,427		9,375,163	$	0.15

Three months ended September 30, 2018
Basic earnings per common share	$	915		7,156,987	$	0.13
Effect of dilutive stock securities		-		72,609		-
Effect of dilutive stock warrants		-		14,279		-
Diluted earnings per common share	$	915		7,243,875	$	0.13

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

Dollars in thousands, except per share data	Net Income		Weighted Average Common Shares		Per Share Amount
Nine months ended September 30, 2019
Basic earnings per common share	$	3,582		9,297,383	$	0.39
Effect of dilutive stock securities		-		70,962		(0.01	)
Effect of dilutive stock warrants		-		2,283		-
Diluted earnings per common share	$	3,582		9,370,628	$	0.38

Nine months ended September 30, 2018
Basic earnings per common share	$	2,006		6,118,461	$	0.33
Effect of dilutive stock securities		-		75,598		(0.01	)
Effect of dilutive stock warrants		-		17,611		-
Diluted earnings per common share	$	2,006		6,211,670	$	0.32

For the three and nine months ended September 30, 2019 and September 30, 2018, there were no anti-dilutive shares.

(5)	Fair Value Measurements

The Company is required to disclose the estimated fair value of financial instruments, both assets and liabilities on and off the balance sheet, for which it is practicable to estimate fair value. These fair value estimates are made at each reporting date, based on relevant market information and information about the financial instruments. Fair value estimates are intended to represent the price an asset could be sold at or the price a liability could be settled for. However, given there is no active market or observable market transactions for many of the Company’s financial instruments, the Company has made estimates of many of these fair values which are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimated values. The methodologies for financial assets and financial liabilities are discussed below:

Cash and Due from Banks and Interest-Earning Deposits with Banks

The carrying amounts for cash and due from banks and interest-earning deposits with banks approximate fair value because of the short maturities of those instruments.

Certificates of Deposit with Banks

The fair value of certificates of deposit with banks is estimated by discounting expected cash flows using the rates currently offered for instruments of similar remaining maturities.

Investment and Equity Securities

Fair value for investment and equity securities equals the quoted market price if such information is available. If a quoted market price is not available in active markets for identical securities (Level 1), fair value may be estimated using observable inputs such as quoted prices for similar securities, interest rates and yield curves, implied volatilities and credit spreads (Level 2). Otherwise, unobservable inputs such as independent pricing models or other model-based valuation techniques such as present value of future cash flows, adjusted for the security’s credit rating on similar securities, prepayment assumptions and other factors such as credit loss assumptions (Level 3). The fair value would be based on an exit price between market participants that may include adjustments for liquidity and credit.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

Loans

The fair value of loans is estimated based on exit price. These cash flows include assumptions for prepayment estimates over each loan’s remaining life, considerations for the current interest rate environment compared to the weighted average rate of each portfolio and a credit risk component based on the historical and expected performance of each portfolio. The calculation also includes market liquidity and credit adjustments.

Accrued Interest Receivable and Payable

The carrying amount is a reasonable estimate of fair value.

Deposits

The fair value of demand deposits, savings, money market and negotiable order of withdrawal (NOW) accounts is the amount payable on demand at the reporting date. The fair value of time deposits is estimated by discounting expected cash flows using the rates currently offered for instruments of similar remaining maturities.

Finance Lease Obligation, Federal Home Loan Bank Advances and Long Term Subordinated Debt

The fair value of borrowings is based upon discounted expected cash flows using current rates at which borrowings of similar maturity could be obtained.

Financial Instruments with Off-Balance Sheet Risk

With regard to commitments to extend credit discussed in Note 10, the fair value amounts are not material.

The carrying amounts and estimated fair values of the Company’s financial instruments, none of which are held for trading purposes, are as follows at September 30, 2019 and December 31, 2018:

			Fair Value Measurements at September 30, 2019 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Dollars in thousands	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
ASSETS
Cash and due from banks	$	13,865	$	13,865	$	-	$	-	$	13,865
Interest-earning deposits with banks		28,229		28,229		-		-		28,229
Certificates of deposit with banks		2,245		-		2,283		-		2,283
Federal Home Loan Bank stock		1,400		-		1,400		-		1,400
Investment securities available for sale		63,761		-		62,779		982		63,761
Equity securities		780		780		-		-		780
Net loans		479,181		-		-		464,526		464,526
Accrued interest receivable		1,714		-		1,714		-		1,714

LIABILITIES
Deposits	$	516,133	$	-	$	524,320	$	-	$	524,320
Finance lease obligation		88		-		88		-		88
Federal Home Loan Bank Advances		20,200		-		20,371		-		20,371
Long term subordinated debt		9,814		-		9,837		-		9,837
Accrued interest payable		760		-		760		-		760

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

			Fair Value Measurements at December 31, 2018 using
			Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
Dollars in thousands	Carrying Value		Level 1		Level 2		Level 3		Total Fair Value
ASSETS
Cash and due from banks	$	10,918	$	10,918	$	-	$	-	$	10,918
Interest-earning deposits with banks		21,022		21,022		-		-		21,022
Certificates of deposit with banks		1,498		-		1,484		-		1,484
Federal Home Loan Bank stock		1,050		-		1,050		-		1,050
Investment securities available for sale		31,960		-		31,960		-		31,960
Equity securities		617		617		-		-		617
Net loans		389,304		-		-		378,675		378,675
Accrued interest receivable		1,259		-		1,259		-		1,259

LIABILITIES
Deposits	$	395,149	$	-	$	389,493	$	-	$	389,493
Capital lease obligation		141		-		141		-		141
Federal Home Loan Bank Advances		16,100		-		16,053		-		16,053
Long term subordinated debt		9,753		-		9,946		-		9,946
Accrued interest payable		421		-		421		-		421

The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available-for-sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1

Valuation based upon quoted prices for identical instruments traded in active markets.

Level 2

Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

Level 3

Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The table below presents the recorded amount of assets and liabilities measured on a recurring basis.

	Total		Level 1		Level 2		Level 3
Dollars in thousands
September 30, 2019
Available-for-Sale Securities
U.S. Government and federal agency	$	17,901	$	-	$	17,901	$	-
Mortgage-backed securities*		27,412		-		27,412		-
Municipal securities		17,466		-		17,466		-
Corporate debt securities		982		-		-		982
Total available-for-sale securities		63,761		-		62,779		982
Equity securities		780		780		-		-
Total	$	64,541	$	780	$	62,779	$	982

December 31, 2018
Available-for-Sale Securities
U.S. Government and federal agency	$	10,789	$	-	$	10,789	$	-
Mortgage-backed securities*		20,541		-		20,541		-
Municipal securities		630		-		630		-
Total available-for-sale securities		31,960		-		31,960		-
Equity securities		617		617		-		-
Total	$	32,577	$	617	$	31,960	$	-

*All of the Company’s mortgage-backed securities are issued either by the U.S. Government, which includes GNMA pools, or by government-sponsored enterprises such as FNMA and FHLMC.

The Company did not have any transfers of assets between Levels 1, 2 or 3 during the periods ended September 30, 2019 and December 31, 2018.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

The tables below present the changes during the three and nine months ended September 30, 2019 in the amount of Level 3 assets measured on a recurring basis.

	Three months ended September 30, 2019
Dollars in thousands
Balance, beginning of period	$	978
Additions		-
Change in valuation recognized in OCI		4
Balance, end of period	$	982

	Nine months ended September 30, 2019
Dollars in thousands
Balance, beginning of period	$	-
Additions		956
Change in valuation recognized in OCI		26
Balance, end of period	$	982

The Company did not have any Level 3 assets measured on a recurring basis as of September 30, 2018.

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures it for impairment. The fair value of impaired loans is estimated using one of several methods, including collateral value, a loan’s observable market price and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value exceeds the recorded investments in such loans. At September 30, 2019, the discounted cash flows method was used in determining the fair value of eight loans totaling $0.8 million and the fair value of the collateral method was used in the other sixteen loans totaling $2.3 million. At December 31, 2018, the discounted cash flows method was used in determining the fair value of nine loans totaling $1.7 million and the fair value of the collateral method was used in the other twenty-two loans totaling $2.4 million. Impaired loans where an allowance is established based on the fair value of collateral and also when written down with the discounted cash flow method require classification in the fair value hierarchy. The fair value of the collateral for an impaired loan is classified as Level 3. Although appraisals of these properties are frequently based on comparable properties, they are not identical. Significant unobservable inputs will need to be used in assessing the value. When the discounted cash flows method is used, the Company records the impaired loan as nonrecurring Level 3. There have been no changes in valuation techniques for the three- or nine-month period ended September 30, 2019. Valuation techniques are consistent with techniques used in prior periods.

The following table presents impaired loans that were re-measured and reported at fair value through a specific valuation allowance allocation of the allowance for loan losses based upon the fair value of the underlying collateral or discounted cash flows during the nine months ended September 30, 2019 and 2018.

	September 30
Dollars in thousands	2019			2018
Carrying value of impaired loans before allocations	$	559		$	1,354
Specific valuation allowance allocations		(26	)		(233	)
Carrying value of impaired loans after allocations	$	533		$	1,121

Table of Contents

CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

Foreclosed Assets

Foreclosed assets are adjusted to fair value upon transfer of the loans to foreclosed assets. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral. The fair value of foreclosed assets is classified as Level 3. Although appraisals of these properties are frequently based on comparable properties, they are not identical. Significant unobservable inputs will need to be used in assessing the value.

The carrying value of foreclosed assets is periodically reviewed and written down to fair value. Any loss is included in earnings. For the three months ended September 30, 2019 and 2018, there were no assets that were written down prior to foreclosure. For the nine months ended September 30, 2019 there were no assets that were written down prior to foreclosure. Comparatively, for the nine months ended September 30, 2018, foreclosed assets in the amount of $1,158,000 were written down by $180,000 to $978,000 prior to foreclosure. For the three months ended September 30, 2019, foreclosed assets with a carrying value of $592,000 were written down by $68,000 to $524,000 subsequent to foreclosure and for the nine months ended September 30, 2019, foreclosed assets with a carrying value of $823,000 were written down by $105,000 to $718,000 subsequent to foreclosure. For the three months ended September 30, 2018, foreclosed assets with a carrying value of $640,000 were written down by $53,000 to $587,000 subsequent to foreclosure and for the nine months ended September 30, 2018, $1,618,000 were written down by $301,000 to $1,317,000 subsequent to foreclosure.

Assets measured at fair value on a nonrecurring basis are included in the table below.

	Total		Level 1		Level 2		Level 3
Dollars in thousands
September 30, 2019
Foreclosed assets	$	718	$	-	$	-	$	718
Impaired loans		533		-		-		533
Total	$	1,251	$	-	$	-	$	1,251

December 31, 2018
Foreclosed assets	$	942	$	-	$	-	$	942
Impaired loans		1,487		-		-		1,487
Total	$	2,429	$	-	$	-	$	2,429

Quantitative information about Level 3 fair value measurements for each category of assets as of the dates indicated is summarized in the following table:

	Fair Value		Valuation Technique	Unobservable Input	Range			Weighted Average
Dollars in thousands
September 30, 2019
Impaired loans	$	533	Discounted cash flows	Discount rate		4.75% - 8.50	%		6.69	%
Foreclosed assets		718	Discounted appraisals	Appraisal adjustments		12.00% – 71.11	%		17.28	%

December 31, 2018
Impaired loans	$	122	Discounted appraisals	Appraisal adjustments		15.00	%		15.00	%
		1,365	Discounted cash flows	Discount rate		4.75 – 8.50	%		7.05	%

Foreclosed assets		942	Discounted appraisals	Appraisal adjustments		8.00% - 15.00	%		9.68	%

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

(6)	Investment Securities

The amortized cost and fair value of investment securities, with gross unrealized gains and losses, as of the dates indicated was as follows:

In thousands	Amortized Cost		Unrealized Gains		Unrealized Losses			Fair Value
September 30, 2019
Available-for-sale:
U.S. Government and federal agency	$	17,644	$	289	$	(32	)	$	17,901
Mortgage-backed securities *		27,100		428		(116	)		27,412
Municipal securities		16,835		631		-			17,466
Corporate debt securities		956		26		-			982
Total available-for-sale securities		62,535		1,374		(148	)		63,761
Equity securities**		1,271		-		(491	)		780
Total	$	63,806	$	1,374	$	(639	)	$	64,541

December 31, 2018
Available-for-sale:
U.S. Government and federal agency	$	11,036	$	6	$	(253	)	$	10,789
Mortgage-backed securities *		21,010		36		(505	)		20,541
Municipal securities		631		1		(2	)		630
Total available-for-sale securities		32,677		43		(760	)		31,960
Equity securities**		1,204		-		(587	)		617
Total	$	33,881	$	43	$	(1,347	)	$	32,577

* All mortgage-backed securities are issued either by the U.S. Government through GNMA or by government sponsored enterprises FNMA or FHLMC.

**Gains/losses on equity securities have been “recognized” instead of unrealized.

The amortized cost and fair values of securities available for sale at September 30, 2019 by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Table of Contents

CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

	Amortized Cost		Fair Value
Dollars in thousands
Due within one year	$	684	$	685
Due after one but within five years		12,682		12,837
Due after five but within ten years		15,517		15,810
Due after ten years		33,652		34,429
	$	62,535	$	63,761

The following table details unrealized losses and related fair values in the Company’s available for sale investment security portfolio. This information is aggregated by the length of time that individual securities have been in a continuous unrealized loss position as of September 30, 2019 and December 31, 2018, respectively.

	Temporarily Impaired Securities in Available-for-Sale Portfolio

	Less than 12 Months					Greater than 12 Months					Total

	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Dollars in thousands
September 30, 2019

U.S. Government and federal agency	$	4,393	$	(23	)	$	989	$	(9	)	$	5,382	$	(32	)
Mortgage-backed securities *		925		(3	)		11,370		(113	)		12,295		(116	)
Municipal Securities		-		-			-		-			-		-
Total temporarily impaired securities	$	5,318	$	(26	)	$	12,359	$	(122	)	$	17,677	$	(148	)

December 31, 2018

U.S. Government and federal agency	$	-	$	-		$	10,657	$	(253	)	$	10,657	$	(253	)
Mortgage-backed securities *		2,885		(10	)		13,644		(495	)		16,529		(505	)
Municipal Securities		-		-			290		(2	)		290		(2	)
Total temporarily impaired securities	$	2,885	$	(10	)	$	24,591	$	(750	)	$	27,476	$	(760	)

* All mortgage-backed securities are issued either by the U.S. Government through GNMA or by government sponsored enterprises FNMA or FHLMC.

Management considers the nature of the investment, the underlying causes of the decline in the market value and the severity and duration of the decline in market value in determining if impairment is other than temporary. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Bank to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. As of September 30, 2019, management believes that it is more likely than not that the Bank will not have to sell any such securities before a recovery of cost. The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date or repricing date or if market yields for such investments decline.

Table of Contents

CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

Management does not believe such securities are other-than-temporarily impaired due to reasons of credit quality. Accordingly, as of September 30, 2019, management believes the impairments detailed in the table above are temporary and no impairment loss has been realized in the Company’s net income. Securities with a fair value of $8.0 million were pledged to secure public funds at September 30, 2019. The Company had no sales of securities during the three or nine month periods ended September 30, 2019 and September 30, 2018.

(7)

Loans

Loans are summarized in the following table which includes $3.2 million at September 30, 2019 of PCI loans resulting from the acquisition of Clover on January 1, 2019; loans purchased with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered PCI loans.

	September 30, 2019						December 31, 2018
Dollars in thousands	Loans - excluding PCI		PCI Loans		Total Loans		Loans - excluding PCI		PCI Loans		Total Loans
Commercial real estate
Residential ADC	$	8,685	$	-	$	8,685	$	4,650	$	-	$	4,650
Commercial ADC		38,999		10		39,009		20,790		-		20,790
Farmland		6,380		-		6,380		4,833		-		4,833
Multifamily		19,361		-		19,361		18,537		-		18,537
Owner occupied		126,026		1,574		127,600		103,983		-		103,983
Non-owner occupied		106,042		-		106,042		97,034		-		97,034
Total commercial real estate		305,493		1,584		307,077		249,827		-		249,827

Commercial
Commercial and industrial		54,337		301		54,638		49,499		-		49,499
Agriculture		200		-		200		262		-		262
Other		7,257		-		7,257		1,573		-		1,573
Total commercial		61,794		301		62,095		51,334		-		51,334

Residential mortgage
First lien, closed-end		67,487		1,248		68,735		53,395		-		53,395
Junior lien, closed-end		901		-		901		812		-		812
Total residential mortgage		68,388		1,248		69,636		54,207		-		54,207

Home equity lines		38,962		-		38,962		33,968		-		33,968
Consumer – other		5,322		72		5,394		3,946		-		3,946
Total loans	$	479,959	$	3,205	$	483,164	$	393,282	$		$	393,282

Loans are primarily originated for customers residing in Lincoln, Gaston, Rutherford, Catawba, Iredell, and Rowan Counties in North Carolina and York County, South Carolina. Real estate loans can be affected by the condition of the local real estate market. Commercial and industrial loans can be affected by the local economic conditions.

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

Non-Accrual and Past Due Loans

Non-accrual loans, segregated by category, were as follows:

	September 30, 2019		December 31, 2018
Dollars in thousands
Commercial real estate
Commercial ADC	$	2	$	42
Owner occupied		813		932
Non-owner occupied		5		4
Total commercial real estate		820		978
Commercial
Commercial and industrial		163		-
Total commercial		163		-
Residential mortgage:
First lien, closed end		99		57
Junior lien, closed end		3		4
Total residential mortgage		102		61
Consumer – other		1		7
Total non-accrual loans	$	1,086	$	1,046

Interest foregone on non-accrual loans was approximately $32,000 and $73,000 for the three and nine months ended September 30, 2019 and $22,000 and $59,000 for the three and nine months ended September 30, 2018.

An analysis of past due loans, segregated by class, at September 30, 2019 and December 31, 2018 is shown below:

In thousands	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
September 30, 2019
Commercial real estate:
Residential ADC	$	-	$	-	$	-	$	8,685	$	8,685	$	-
Commercial ADC		-		-		-		39,009		39,009		-
Farmland		-		-		-		6,380		6,380		-
Multifamily		-		-		-		19,361		19,361		-
Owner occupied		439		-		439		127,161		127,600		-
Non-owner occupied		541		5		546		105,496		106,042		-
Total commercial real estate		980		5		985		306,092		307,077		-
Commercial
Commercial and industrial		218		41		259		54,379		54,638		-
Agriculture		-		-		-		200		200		-
Other		-		-		-		7,257		7,257		-
Total commercial		218		41		259		61,836		62,095		-
Residential mortgage:
First lien, closed end		-		197		197		68,538		68,735		117
Junior lien, closed-end		59		-		59		842		901		-
Total residential mortgage		59		197		256		69,380		69,636		117
Home equity lines		145		-		145		38,817		38,962		-
Consumer – other		-		-		-		5,394		5,394		-
Total loans	$	1,402	$	243	$	1,645	$	481,519	$	483,164	$	117

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

In thousands	Loans 30-89 Days Past Due		Loans 90 or More Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or More Days Past Due
December 31, 2018
Commercial real estate:
Residential ADC	$	-	$	-	$	-	$	4,650	$	4,650	$	-
Commercial ADC		39		-		39		20,751		20,790		-
Farmland		-		-		-		4,833		4,833		-
Multifamily		-		-		-		18,537		18,537		-
Owner occupied		-		927		927		103,056		103,983		-
Non-owner occupied		-		4		4		97,030		97,034		-
Total commercial real estate		39		931		970		248,857		249,827		-
Commercial:
Commercial and industrial		126		-		126		49,373		49,499		-
Agriculture		-		-		-		262		262		-
Other		-		-		-		1,573		1,573		-
Total commercial		126		-		126		51,208		51,334		-
Residential mortgage:
First lien, closed end		247		33		280		53,115		53,395		-
Junior lien, closed-end		-		-		-		812		812		-
Total residential mortgage		247		33		280		53,927		54,207
Home equity lines		85		-		85		33,883		33,968		-
Consumer – other		-		13		13		3,933		3,946		5
Total loans	$	497	$	977	$	1,474	$	391,808	$	393,282	$	5

Impaired loans

Information regarding the Company’s impaired loans is set forth in the following tables.

September 30, 2019

In thousands	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
Commercial real estate
Commercial ADC	$	2	$	2	$	-	$	-
Owner occupied		2,092		2,092		-		-
Non-owner occupied		5		5		-		-
Total commercial real estate		2,099		2,099		-		-
Commercial
Commercial and industrial		314		314		-		-
Residential mortgage
First lien, closed-end		419		99		310		26
Junior lien, closed- end		308		59		249		-
Total residential mortgage		727		158		559		26
Home equity lines		-		-		-		-
Consumer – other		1		1		-		-
Total loans	$	3,141	$	2,572	$	559	$	26

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CAROLINA TRUST BANCSHARES, INC.
Notes to Condensed Consolidated Financial Statements

December 31, 2018

In thousands	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Related Allowance
Commercial real estate
Commercial ADC	$	42	$	42	$	-	$	-
Owner occupied		2,409		2,269		140		17
Non-owner occupied		5		5		-		-
Total commercial real estate		2,456		2,316		140		17
Commercial
Commercial and industrial		624		-		624		111
Residential mortgage
First lien, closed-end		876		56		760		42
Junior lien, closed- end		478		270		208		75
Total residential mortgage		1,354		326		968		117
Home equity lines		-		-		-		-
Consumer – other		7		7		-		-
Total loans	$	4,441	$	2,649	$	1,732	$	245

	Three months ended September 30, 2019				Three months ended September 30, 2018

In thousands	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial real estate
Commercial ADC	$	3	$	-	$	1	$	-
Multifamily		-		-		-		-
Owner occupied		2,119		16		619		20
Non-owner occupied		5		-		1		-
Total commercial real estate		2,127		16		621		20
Commercial
Commercial and industrial		554		3		171		11
Residential mortgage
First lien, closed-end		430		4		216		16
Junior lien, closed- end		349		3		107		5
Total residential mortgage		779		7		323		21
Home equity lines

Carolina Trust BancShares, Inc. 10-Q